Big 5 Sporting Goods Corp. reported earnings more than tripled in the second quarter ended July 4 as same-store sales jumped 31 percent. Earnings and sales came in well above company guidance.
Steven G. Miller, the company’s chairman, president and chief executive officer, said, “Our second-quarter results exceeded expectations as we achieved another quarter of record sales and earnings results. Same-store sales for the fiscal 2021 second quarter were up 31.2 percent versus the prior-year period and were up 33.4 percent versus the fiscal 2019 second quarter reflecting a continuation of strong broad-based demand across our product mix. For the second quarter, we generated a record net income of $36.8 million with $88.7 million of operating cash flow. Our bottom-line results benefitted from further expansion of our merchandise margins as well as operating with a cost structure that is meaningfully enhanced compared to pre-pandemic. Although we are cycling the peak of the 2020 COVID-19-related sales surge and we are being impacted by the widely reported supply chain disruptions and staffing challenges in the retail industry, we have continued to produce strong sales growth and margins versus historical pre-pandemic levels. In light of the overall strength of our business, our Board of Directors has declared a 39 percent increase in our regular cash dividend to an annual rate of $1.00 per share, which is our fourth dividend increase over the past four quarters.”
Same-stores sales grew 31.2 percent versus the high-end of guidance of 27 percent. EPS of $1.63 for the second quarter topped the guidance range of $1.05 to $1.25.
Net sales for the fiscal 2021 second quarter were $326.0 million compared to net sales of $227.9 million for the second quarter of fiscal 2020, which included significant temporary store closures due to COVID-19 particularly over the first half of the period. Same-store sales increased 31.2 percent for the second quarter of fiscal 2021. In addition to comping against last year’s COVID-19-related temporary store closures, the increase in net sales also reflected the positive impact from a calendar shift related to its 53-week fiscal 2020 that resulted in a benefit from pre-Fourth of July holiday sales moving from the third quarter in fiscal 2020 to the second quarter in fiscal 2021 and a calendar shift of the Easter holiday during which the company’s stores are closed from the second quarter of fiscal 2020 into the first quarter of fiscal 2021.
Gross profit for the fiscal 2021 second quarter increased to $126.9 million from $72.2 million in the second quarter of the prior year. The company’s gross profit margin was 38.9 percent in the fiscal 2021 second quarter versus 31.7 percent in the second quarter of the prior year. The increase in gross profit margin largely reflects a 380-basis point increase in merchandise margins, significant leverage of store occupancy costs as a percentage of net sales and a favorable impact from higher distribution costs capitalized into inventory for the quarter.
Selling and administrative expenses as a percentage of net sales were 24.0 percent in the fiscal 2021 second quarter versus 25.6 percent in the fiscal 2020 second quarter. Overall selling and administrative expense for the quarter increased by $20.1 million from the prior year primarily because the prior-year period included significant temporary store closures due to COVID-19 and also because the fiscal 2021 second quarter included higher performance-based incentive compensation accruals. Selling and administrative expenses for the fiscal 2021 second quarter and for the fiscal 2020 second quarter each included a special recognition bonus provision for certain store-based employees.
Net income for the second quarter of fiscal 2021 was $36.8 million, or $1.63 per diluted share, compared to net income for the second quarter of fiscal 2020 of $11.1 million, or $0.52 per diluted share.
When reporting first-quarter results on May 5, Big 5 said it expected same-store sales in the second quarter to increase in the range of 22 percent to 27 percent and EPS in the range of $1.05 to $1.25.
For the 26-week period ended July 4, 2021, net sales were $598.8 million compared to net sales of $445.7 million in the first 26 weeks of last year. Same-store sales increased 31.5 percent in the first half of fiscal 2021 versus the comparable period last year. Net income for the first 26 weeks of fiscal 2021 was $58.3 million, or $2.59 per diluted share, including a net benefit in the first quarter of $0.06 per diluted share related to an insurance settlement and the elimination of an employment agreement liability. This compares to net income for the first 26 weeks of fiscal 2020 of $6.5 million, or $0.31 per diluted share, including a previously reported net benefit of $0.13 per diluted share.
Adjusted EBITDA was $52.9 million for the second quarter of fiscal 2021 and $83.2 million for the 26-week period ended July 4, 2021. EBITDA and Adjusted EBITDA are non-GAAP financial measures.
Balance Sheet
The company ended the fiscal 2021 second quarter with zero borrowings under its credit facility and with cash and cash equivalents of $118.9 million. This compares to zero borrowings and $100.1 million of cash and cash equivalents as of the end of the fiscal 2021 first quarter and $35.0 million of borrowings and $16.7 million of cash as of the end of the fiscal 2020 second quarter. The company grew its cash by $18.8 million during the fiscal 2021 second quarter while also paying shareholders cash dividends of $25.8 million. Total merchandise inventories decreased by approximately 5.6 percent as of the end of the fiscal 2021 second quarter versus the second quarter of the prior year.
Quarterly Cash Dividend
In light of the continued strength of the company’s business, cash flow generation and improved balance sheet, the company’s Board of Directors has declared a 39 percent increase in its quarterly cash dividend from $0.18 per share of outstanding common stock to $0.25 per share of outstanding common stock, which will be paid on September 15, 2021 to stockholders of record as of September 1, 2021. In addition to the $1.00 per share special dividend paid in the second quarter, this represents the fourth increase in its regular quarterly dividend over the last four quarters from $0.05 to $0.25 per share.
Third Quarter Guidance
For the fiscal 2021 third quarter, the company expects same-store sales in the flat to the positive mid-single-digit range and expects to realize earnings per diluted share in the range of $0.95 to $1.15. This compares to a same-store sales increase of 14.8 percent and earnings per diluted share of $1.31 in the third quarter of fiscal 2020, which, at the time, were the highest sales and earnings of any quarter in the company’s history. For the third quarter of fiscal 2019, earnings per diluted share were $0.30. Fiscal 2021 third-quarter guidance reflects anticipated continued impacts related to the widely reported supply chain disruptions and staffing challenges in the retail industry. Also, guidance relative to the prior-year period reflects the unfavorable impact of the fiscal calendar shift related to its 53-week fiscal 2020, which moved the Fourth of July holiday from the third quarter of fiscal 2020 into the second quarter of fiscal 2021. As a result, the third quarter of fiscal 2021 excludes the historically high-volume Fourth of July holiday week, which is replaced by a historically low-volume week in early October. As a result of this shift, the company anticipates an approximately $0.20 unfavorable impact to diluted earnings per share for the third quarter. This calendar shift does not impact the company’s same-store sales calculation, which is measured on a comparable-week basis. The company’s sales and earnings guidance for the fiscal 2021 third quarter assumes that any new conditions relating to the COVID-19 pandemic, including any regulations that may be issued in response to the pandemic, will not materially impact the company’s operations during the period.
Store Openings
The company currently has 429 stores in operation, which reflects one store closure in the third quarter to date. Over the remainder of fiscal 2021, the company expects to open approximately five stores and close approximately one store.
Photo courtesy Big 5
